Endowments, Specialization, and Policy

Olivier Cadot, University of Lausanne
Yuliya Shakurova, University of Lausanne, Switzerland
Alessandro Nicita, World Bank
Claudio Sfreddo, University of Geneva

Abstract

The paper explores the relationship between industry shares in production and their determinants including factor endowments, technology and government policies, in a GDP-function framework. We use a new international panel data set on production and trade compiled by the World Bank. As an intermediate step we calculate Hicks-neutral productivity indices that vary across industries, time and countries. We find that own-TFP is robustly associated with industry shares across time and countries and that, after correcting for these productivity differences, output shares are related to factor endowments (Rybczynski effects) in a plausible way. Once Rybczynski effects are controlled for, we find little evidence of demand-side policies (import tariffs) affecting the allocation of resources; we find, however, more role for supply-side policies as the relative size of capital-intensive industries is positively associated with infrastructure-capital endowments.